Accounting Standards of Coromandel

8/8/2019 Accounting Standards of Coromandel

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Overview of Accounting Standards of

Schedule VI Requirements in the Annual

Report Of COROMANDEL INTERANATIONAL

LIMITED for 2009-2010

Submitted by:

Balachandra Prabhu (091202097)

Mekala Manasa(091202067)

Sweeta Dsouza(091202014)

Akshatha Nayak(091202037)


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One of the largest companies within the Murugappa Group, Coromandel International, has

been vitalising the agricultural sector since its inception in 1964 under the name Coromandel

Fertilizers. Today, Coromandel International is a leading manufacturer and markets a wide

range of Fertilisers, Speciality Nutrients, Crop Protection and Retail.

Coromandel manufactures and markets around 2.9 million tonnes of phosphatic fertilisers,

making it a leader in its addressable markets and the second largest phosphatic fertiliser

player in India. In its endeavour to be a complete plant nutrition solutions company,

Coromandel has also introduced a range of Speciality Nutrient products including Organic

Fertilisers. The Crop Protection business produces insecticides, fungicides and herbicides and

markets these products in India and across the globe. Coromandel is the second largest

manufacturer of Malathion and only the second manufacturer of Phenthoate.

Coromandel has also ventured into the retail business setting up more than 420 rural retail

centers in the agri segment called Mana Gromor out of which about 200 centres have

lifestyle segment called Mitra.

The Company has strategic partnerships with leading companies across the globe. A

Technical Assistance Agreement was inked with Foskor (Pty) Ltd. of South Africa, one of the

largest phosphoric acid producing companies, for extending Coromandels technical

assistance. Coromandel and Gujarat State Fertiliser Corporation (GSFC) signed a joint

venture agreement in November 2005 with Groupe Chimique Tunisien (GCT) and CPG of

Tunisia to set up a phosphoric acid plant at La Skhira, Tunisia, at an estimated cost of US$

500 million.


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Coromandel was voted one of the Top 10 Greenest Companies in India by Tata Energy

Research Institute (TERI) - Business Today, reflecting the Company`s commitment to the

environment and society.

The organisation has come a long way since 1906 and owes its success to its engagedworkforce and customers, committed vendors, suppliers and supportive investors

Accounting is the art of recording transactions in the best manner possible, so as to enable

the reader to arrive at judgments/come to conclusions, and in this regard it is utmost

necessary that there are set guidelines. These guidelines are generally called accounting

policies. The intricacies of accounting policies permitted Companies to alter their accounting

principles for their benefit. This made it impossible to make comparisons. In order to avoid

the above and to have a harmonised accounting principle, Standards needed to be set by

recognised accounting bodies. This paved the way for Accounting Standards to come into

existence.

Accounting Standards in India are issued By the Institute of Chartered Accountanst of India

(ICAI). At present there are 30 Accounting Standards issued by ICAI.

Objective of Accounting Standards

Objective of Accounting Standards is to standarize the diverse accounting policies and

practices with a view to eliminate to the extent possible the non-comparability of financial

statements and the reliability to the financial statements.

The institute of Chatered Accountants of India, recognizing the need to harmonize the

diversre accounting policies and practices, constituted at Accounting Standard Board (ASB)on 21st April, 1977.


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AS 1: Disclosure of Accounting Policies:

Accounting Policies refer to specific accounting principles and the method of applying those

principles adopted by the enterprises in preparation and presentation of the financial

statements

All significant accounting policies adopted in preparation of financial statements areto be disclosed

Changes in accounting policies is to be disclosed with its effect on financialstatements

Basis of preparation of accounts

The financial statements ofcoromandel have been prepared on the basis of going concern,

under the historic cost convention, to comply in all material aspects with applicable

accounting principles in India, the Accounting Standards notified under Section 21 1 (3C) of

the Companies Act, 1956 ("the Act") and the relevant provisions of the Act.

AS 2: Valuation of Inventories :

The objective of this standard is to formulate the method of computation of cost of

inventories / stock, determine the value of closing stock / inventory at which the inventory isto be shown in balance sheet till it is not sold and recognized as revenue.

This standard deals with the valuing of the inventories.

Inventories include

Raw materials Finished goods Work in progress Stores , consumables etc


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This standard is followed at Coromandel as follows:

Raw Materials and Stores and spares are valued at or below cost. Other inventoriesare valued at lower of cost and net realisable value. The method of determination of

cost of various categories of inventories is as follows: a) Stores and Spares - Weighted Average Cost. b) Raw Material - First-in-First-out basis. Cost includes purchase cost and other

attributable expenses.

c) Finished Goods and Work-in-process - Weighted average cost of production whichcomprises of direct material costs, direct wages and applicable overheads.

d) Goods purchased for resale - Weighted Average Cost

AS 3: Cash Flow Statements :

Cash flow statement is additional information to user of financial statement. This statement

exhibits the flow of incoming and outgoing cash. This statement assesses the ability of the

enterprise to generate cash and to utilize the cash. This statement is one of the tools for

assessing the liquidity and solvency of the enterprise.

For the listed companies , cash flow statements are part of financial statements.

Cash flow statements should disclose the following information:

Cash flow from operating activities Cash flow from financing activities Cash flow from investing activities

The cash flow statement ofCoromandel has been prepared under the Indirect Method as

set out in AS 3 on cash flow statements notified under section 211 (3 C) of the act.

It includes cash flow from operating activities , financing activities and investing activities.


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AS 4: Contingencies and Events Occurring after the Balance Sheet Date :

In preparing financial statement of a particular enterprise, accounting is done by following

accrual basis of accounting and prudent accounting policies to calculate the profit or loss for

the year and to recognize assets and liabilities in balance sheet. While following the prudent

accounting policies, the provision is made for all known liabilities and losses even for those

liabilities / events, which are probable. Professional judgement is required to classify the

likehood of the future events occuring and, therefore, the question of contingencies and their

accounting arises.

Objective of this standard is to prescribe the accounting of contigencies and the events, which

take place after the balance sheet date but before approval of balance sheet by Board of

Directors. The Accounting Standard deals with Contingencies and Events occuring after the

balance sheet date.

Contingent Liabilities ofCoromandel is as follows

a) Guarantees

(i) The Company has provided guarantee to third parties on behalf of its subsidiary CFL

Mauritius Limited - Rs.5,963.76 Lakhs (2009 : Rs. 6,697.68 Lakhs.)

(ii) The Company has provided a guarantee towards the borrowing of Tunisian Indian

Fertilisers S.A., Tunisia (TIFERT), a joint venture Company, up to Rs. 23,380.65 Lakhs

(2009 : Rs. 26,257.95 Lakhs).

b) Land: Liability for additional compensation payable in respect of land purchased from

M/s. Nagarjuna Fertilisers and Chemicals Limited has not been provided for, pending court

orders and determination of the amount payable.

The amounts shown in the item (a) represent guarantees given in the normal course of

business and not expected to result in any loss to the Company on the basis of the

beneficiaries fulfilling their obligations. The amounts in items (b) and (c) represent best

estimates and the uncertainties are dependent on the outcome of the legal processes initiated

by the Company or the claimant as the case may be.


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AS 5: Net Profit or Loss for the period, Prior Period Items and Changes in Accounting

Policies

The objective of this accounting standard is to prescribe the criteria for certain items in the

profit and loss account so that comparability of the financial statement can be enhanced.

Profit and loss account being a period statement covers the items of the income and

expenditure of the particular period. This accounting standard also deals with change in

accounting policy, accounting estimates and extraordinary items

This standard is not applicable for Coromandel.

AS 6:Depreciation Accounting:

It is a measure of wearing out, consumption or other loss of value of a depreciable asset

arising from use, passage of time. Depreciation is nothing but distribution of total cost of

asset over its useful life.

This standard applies to all depreciable assets.

This standard is followed in Coromandel as follows:

Depreciation is provided on the straight-line method. Depreciation on all assets (except

certain Plant and Machinery, Vehicles and Computers and related equipment) has been

provided over the useful life of the assets as determined by the management or derived from

the rates prescribed in Schedule - XIV to the Companies Act 1 956, whichever is higher. The

useful life of such assets is periodically reviewed and re-determined and the unam.ortised

depreciable amount is charged over the remaining useful life of such assets. Leasehold land is

being amortised over the lease period.


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AS 7:Accounting for Construction contracts :

Accounting for long term construction contracts involves question as to when revenue should

be recognized and how to measure the revenue in the books of contractor. As the period of

construction contract is long, work of construction starts in one year and is completed inanother year or after 4-5 years or so. Therefore question arises how the profit or loss of

construction contract by contractor should be determined. There may be following two ways

to determine profit or loss: On year-to-year basis based on percentage of completion or On

completion of the control

This standard deals with accounting for construction contracts in the financial statements of

contractors. As Coromandel is agricultural based company AS 7 is not applicable.

AS 9 Revenue Recognition:

The standard explains as to when the revenue should be recognized in profit and loss account

and also states the circumstances in which revenue recognition can be postponed. Revenue

means gross inflow of cash, receivable or other consideration arising in the course of ordinary

activities of an enterprise such as:- The sale of goods, Rendering of Services, and Use of

enterprises resources by other yeilding interest, dividend and royalties. In other words,

revenue is a charge made to customers / clients for goods supplied and services rendered

This standard deals with the recognition of revenue in the statement of profit and loss of an

company. Coromandel has applied this standard as follows:

a) Sale of goods is recognized at the point of despatch to customers. Sales include amounts

recovered towards excise duty and exclude sales tax.

b) Dividend income from investments is accounted for in the year in which the right toreceive the payment is established.

c) Subsidy is recognized on the basis of the concession schemes announced by the

Government of India from time to time on the quantity of fertilisers sold by the Company at


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the final rates notified by the Government for the period for which notification has been

issued and for the remaining period, based on management estimates.

d) Export benefits under DEPB license and excise benefits are accounted for on accrual basis.

AS 10:Accounting for Fixed Assets :

It is an asset, which is:- Held with intention of being used for the purpose of producing or

providing goods and services. Not held for sale in the normal course of business. Expected to

be used for more than one accounting period.

Coromandle has met this standard as follows:

Fixed assets are shown at cost or valuation less depreciation. Cost comprises of the purchase

price and other attributable expenses including cost of borrowings till the date of

capitalisation in the case of assets involving material investment and substantial lead time.

AS 11:Accounting for the Effects ofChanges in Foreign Exchange Rates:

Effect of Changes in Foreign Exchange Rate shall be applicable in Respect of Accounting

Period commencing on or after 01-04-2004 and is mandatory in nature. This accounting

Standard applicable to accounting for transaction in Foreign currencies in translating in the

Financial Statement Of foreign operation Integral as well as non- integral and also accounting

for For forward exchange. Effect of Changes in Foreign Exchange Rate, enterprises should

disclose following aspects:

y Amount Exchange Difference included in Net profit or Loss;y Amount accumulated in foreign exchange translation reserve;

Reconciliation of opening and closing balance of Foreign Exchange translation reserve;

Coromandle has implied this standard as:


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Transactions made during the year in foreign currency are recorded at the exchange rate

prevailing at the time of transactions. Monetary assets and liabilities relating to foreign

currency transactions remaining unsettled at the yearend are translated at the exchange rate

prevalent at the date of Balance Sheet. Exchange differences arising on actual

payment/realisation and year end reinstatement referred to above are recognised in the Profit

and Loss Account.

In respect of forward contracts entered into to hedge risks associated with foreign currency

fluctuation, the premium or discount at the inception of the contract is amortised as income or

expense over the period of the contract. Currency options/other swap contracts outstanding as

at the Balance Sheet date are marked to market and the resultant gain/loss is recognised in the

Profit and Loss Account. Any profit or loss arising on cancellation of such contracts is

recognized as income or expense in the Profit and Loss Account of the year.

AS 12: Accounting for Government Grants:

Governement Grants are assistance by the Govt. in the form of cash or kind to an enterprise

in return for past or future compliance with certain conditions. Government assistance, which

cannot be valued reasonably, is excluded from Govt. grants,. Those transactions with

Governement, which cannot be distinguished from the normal trading transactions of the

enterprise, are not considered as Government grants.

AS 12 is followed in Coromandle as follows

The Government of India grants price concession on sale of fertilizers and income from such

concession is shown under Government Subsidies in the Profit and Loss account. The

subsidy income for the year includes Rs264, 712.00 Lakhs[including deferred subsidy

income relating to earlier periods of Rs.23, 617.00 Lakhs (corresponding incone tax has been

changed to the profit and Loss account- Rs. 8,027.00 Lakhs)] being income

accured/recognized based on the managements understanding of the prevalent subsidy

scheme for the period for which notification has been issued and based on management

estimates for the remaining period. Necessary adjustments to such estimates will be made on

announcement of final notification/determination.


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AS 13: Accounting for Investments

It is the assets held for earning income by way of dividend, interest and rentals, for capital

appreciation or for other benefits

Long term investments are valued at cost. The diminution in the market value of such

investments is not recognised unless it is considered permanent in nature. Current

investments are valued at cost or market value, whichever is lower

Coromandle has formed a 50:50 joint venture, Coromandle SQM India Private Limited in

India. The company has increased Rs.199.73 Lakhs towards 1,997,330 equity shares of Rs.

10 each in the Equity share capital of Coromandle SQM India Private Limited.

AS 14: Accounting for Amalgamations:

This accounting standard deals with accounting to be made in books of Transferee Company

in case of amalgamtion. This accounting standard is not applicable to cases of acquisition ofshares when one company acquires / purcahses the share of another company and the

acquired company is not dissolved and its separate entity continues to exist. The standard is

applicable when acquired company is dissolved and separate entity ceased exists and

purchasing company continues with the business of acquired company. This standard is not

applicable forCoromandle.

AS 15: Accounting for Retirement Benefits in the Financial Statement of Employers:

Accounting Standard has been revised by ICAI and is applicable in respect of accounting

periods commencing on or after 1st April 2006. the scope of the accounting standard has been

enlarged, to include accounting for short-term employee benefits and termination benefits.


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Coromandle has met this standard as follows.

Defined Contribution Plans

Contributions paid/payable to defined contribution plans comprising of Superannuation

(under a scheme of Life Insurance Corporation of India) and Provident Funds for certain

employees covered under the respective Schemes are recognised in the Profit and Loss

Account each year.

Coromandle makes contributions to three Provident Fund Trusts for certain employees, at a

specified percentage of the employees salary. The Company has an obligation to make good

the shortfall, if any, between the return from the investments of trust and the notified interest

rates. Liability on account of such shortfall, if any, is provided for based on the actuarial

valuation carried out in accordance with the revised Accounting Standard 15 (revised 2005)

on Employee Benefits notified under Sec 21 1 (3C) of the Act (revised AS 1 5) as at the end

of the year.

Defined Benefit Plans

Gratuity for certain employees is covered under a Scheme of Life Insurance Corporation of

India (LIC) and contributions in respect of such scheme are recognised in the Profit and Loss

Account. The liability as at the Balance Sheet date is provided for based on the actuarial

valuation carried out in accordance with revised AS 1 5 as at the end of the year.

Coromandle makes contributions for Superannuation and Gratuity (for employees not

covered under the LIC Scheme) to Trusts, which are recognised in the Profit and Loss

Account. The Companys liability as at the Balance Sheet date is provided for based on the

actuarial valuation in accordance with the requirements of revised AS 1 5 as at the end of the

year.


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Other long term employee benefits

Other long term employee benefits comprise of leave encashment which is provided for

based on the actuarial valuation carried out in accordance with revised AS 1 5 as at the end of

the year.

Short term employee benefits

Short term employee benefits including accumulated compensated absences as at the Balance

Sheet date are recognised as an expense as per Companys schemes based on expected

obligation on an undiscounted basis.

AS 16: on Borrowing Costs:

Enterprises are borrowing the funds to acquire, build and install the fixed assets and other

assets, these assets take time to make them useable or saleable, therefore the enterprises incur

the interest (cost on borrowing) to acquire and build these assets. The objective of the

Accounting Standard is to prescribe the treatment of borrowing cost (interest + other cost) in

accounting, whether the cost of borrowing should be included in the cost of assets or not.

This standard is not applied because they have not borrowed anything.

AS 17: Segment Reporting:

An enterprise needs in multiple products/services and operates in different geographical

areas. Multiple products / services and their operations in different geographical areas are

exposed to different risks and returns. Information about multiple products / services and

their operation in different geographical areas are called segment information. Such

information is used to assess the risk and return of multiple products/services and their

operation in different geographical areas. Disclosure of such information is called segment

reporting


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Coromandel has considered business segment as the primary segment for disclosure. The

company is primarily engaged in the manufacture and trading of farm Inputs, which in the

context of As 17 issued by the institute of Chartered Accountants of India is considered the

only business segment. In respect of retail business of all the company, since this is not

material, disclosure of business segment is not considered necessary at this stage.

AS 18: Related Party Disclosures:

Sometimes business transactions between related parties lose the feature and character of the

arms length transactions. Related party relationship affects the volume and decision of

business of one enterprise for the benefit of the other enterprise. Hence disclosure of related

party transaction is essential for proper understanding of financial performance and financial

position of enterprise.

AS 18 in Coromandel is as follows:

Information relating to Related Party Transactions as per AS18 notified under section

211(3C) of the Act.

Names of the related parties and their relationships:

Name of the related party Relationship

E.I.D Parry (India ) LTD

Parry Chemicals LTD(PCL)

CFL Mauritius LTD(CML)

Coromandel Brasil Limitada(CBL)

Parry Investments LTD

Parry Infrastructure Company Pvt LTD(PICPL)

Sadashiva Sugars LTD(SSL)

Coromandle Getax Phosphates Pte LTD(CGPL)

Holding company

Subsidiary company

Subsidiary company

Subsidiary company

Fellow Subsidiary company



Joint Venture


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Coromandle SQM India Pvt LTS(CSQM)

Tunisian Indian Fertilisers. SA(TIFERT)

Prathyusha Chemicals and Fertilizers LTD(PCFL)

Mr.V. Ravichandran , managing director

Joint Venture

Joint Venture

Associate

Key Management Personnel

AS 19: Leases:

Lease is an arrangement by which the lesser gives the right to use an asset for given period of

time to the lessee on rent. It involves two parties, a lessor and a lessee and an asset which is

to be leased. The lessor who owns the asset agrees to allow the lessee to use it for a specified

period of time in return of periodic rent payments.

Coromandels significant leasing arrangements are in respect of operating leases for

premises that are cancellable in nature. The lease rentals paid under such agreements are

charged to the Profit and Loss Account

AS 20:Earnings Per Share (EPS):

Earning per share (EPS)is a financial ratio that gives the information regarding earning

available to each equiy share. It is very important financial ratio for assessing the state of

market price of share. This accounting standard gives computational methodology for the

determination and presentation of earning per share, which will improve the comparison of

EPS. The statement is applicable to the enterprise whose equity shares or potential equity

shares are listed in stock exchange

The earnings considered for ascertaining theCoromandel Earnings Per Share comprises the

net profit after tax. The number of shares used in computing Basic EPS is the weighted


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This standard had been followed by the company as follows:

a) Provision for current tax is made for the amount of tax payable in respect of taxable

income for the year under Income Tax Act, 1961.

b) Deferred tax is recognised on timing differences being the difference between taxable

income and accounting income that originate in one period and are capable of reversal in

subsequent periods, subject to consideration of prudence.

AS 23:Accounting for investments in associates in consolidated financial statements:

The accounting standard was formulated with the objective to set out the principles and

procedures for recognizing the investment in associates in the cosolidated financial

statements of the investor, so that the effect of investment in associates on the financialposition of the group is indicated. This is not applicable for Coromandel.

AS 24:Discontinuing Operations :

The objective of this standard is to establish principles for reporting information about

discontinuing operations. This standard covers "discontinuing operations" rather than

"discontinued operation". The focus of the disclosure of the Information is about the

operations which the enterprise plans to discontinue rather than disclosing on the operations

which are already discontinued. However, the disclosure about discontinued operation is also

covered by this standard. Not applicable.

AS 25:Interim financial reporting :

Interim financial reporting is the reporting for periods of less than a year generally for a

period of 3 months. As per clause 41 of listing agreement the companies are required to

publish the financial results on a quarterly basis. Not applicable for Coromandel

AS 26:Intangible assets:

An Intangible Asset is an Identifiable non-monetary Asset without physical substance held

for use in the production or supplying of goods or services for rentals to others or for

administrative purpose. Not applicable for this company


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AS 27:Financial reporting of interest in joint ventures :

Joint Venture is defined as a contractual arrangement whereby two or more parties carry on

an economic activity under 'joint control'. Control is the power to govern the financial and

operating policies of an economic activity so as to obtain benefit from it. 'Joint control' is thecontractually agreed sharing of control over economic activity. Not applicable for this

company

AS 28:Impairment of Assets:

The dictionary meanong of 'impairment of asset' is weakening in value of asset. In other

words when the value of asset decreases, it may be called impairment of an asset. As per AS-

28 asset is said to be impaired when carrying amount of asset is more than its recoverable

amount. Not applicable for this company

AS 29 :Provisions, Contingent liabilities and assets :

Objective of this standard is to prescribe the accounting for Provisions, Contingent

Liabilitites, Contingent Assets, Provision for restructuring cost.

Provision: It is a liability, which can be measured only by using a substantial degree of

estimation.

Liability: A liability is present obligation of the enterprise arising from past events the

settlement of which is expected to result in an outflow from the enterprise of resources

embodying economic benefits.

Provisions are recognized only when there is a present obligation as a result of past events

and when a reasonable estimate of the amount of obligation can be made. Contingent

liabilities disclosed for (i) possible obligation which will be confirmed only by future events

not wholly within the control of the Company or (ii) present obligations arising from past

events where it is not probable that an outflow of resources will be required to settle the

obligation or a reliable estimate of the amount of the obligation cannot be made. Contingent

assets are neither recognized nor disclosed in the financial statements.


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AS 30: Financial instruement-recognition & Measurement:

Recognition and Measurement, issued by The Council of the Institute of Chartered

Accountants of India, comes into effect in respect of Accounting periods commencing on or

after 1-4-2009 and will be recommendatory in nature for An initial period of two years. ThisAccounting Standard will become mandatory in respect of Accounting periods commencing

on or after 1-4-2011 for all commercial, industrial and business Entities except to a Small and

Medium-sized Entity. The objective of this Standard is to establish principles for recognizing

and measuring Financial assets, financial liabilities and some contracts to buy or sell non-

financial items. Requirements for presenting information about financial instruments are in

Accounting Standard. Not applicable for this company

AS 31: Financial instruments presentation:

The objective of this Standard is to establish principles for presenting financial instruments as

liabilities or equity and for offsetting financial assets and financial liabilities. It applies to the

classification of financial instruments, from the perspective of the issuer, into financial assets,

financial liabilities and equity instruments; the classification of related interest, dividends,

losses and gains; and the circumstances in which financial assets and financial liabilities

should be offset. The principles in this Standard complement the principles for recognising

and measuring financial assets and financial liabilities in Accounting Standard Financial

Instruments. Not applicable for this company.

Documents

Accounting Standards of Coromandel